Interviews on China Real Estate, Banks, and Rising Wages

Here are links to a couple of reports where I was interviewed or quoted this past week:

I met Washington Post blogger and columnist Ezra Klein on his recent visit to Beijing, and we had a number of conversations about the Chinese economy. The first part of his interview with me, which was published last Sunday, focuses on whether there’s a property bubble in China. The second part discusses the risks China’s response to the global financial crisis poses to the health of its banking system.

Last night, PBS Nightly Business Report in the U.S. broadcast a feature on China’s property market, put together by Beijing-based correspondent Shannon Van Sant (you can link to the complete show here, my segment begins at the 12:27 mark). In it, we talked about the phenomenon of Chinese investors stockpiling empty apartments:

VAN SANT: Huayuan’s properties meet those demands — at a high price. The company’s newest Beijing development sells for $78,000 a square foot or nearly $2 million U.S. dollars for a three bedroom apartment. The prices of Huayuan’s Beijing properties have more than doubled since 2006. And while urbanization may be increasing demand for apartments, so are speculators and buyers looking for a place to stash their cash. Economics professor Patrick Chovanec calls it the bar of gold syndrome.

PATRICK CHOVANEC, ASSOC. PROF., TSINGHUA UNIVERSITY: Real estate as an investment vehicle competes with real estate as a human need. So, people are putting money into real estate like a bar of gold, to store value and that’s bidding up the price of housing for everyone.

VAN SANT: People in China have few options to save their money. Bank interest rates remain tightly regulated and the government has just starting letting people invest abroad. And some hesitate to put money in China’s unpredictable stock markets, so they’re purchasing apartments instead. Are these sales creating a bubble? Developers like Huayuan don’t think so. For one thing, buyers are not relying on leverage. Eighty percent of Huayuan’s Beijing customers pay for their apartments up front. And Chovanec says sales will remain strong until Chinese have other options for saving their money.

CHOVANEC: This is a real source of demand. It’s a very unstable source of demand. It’s an unhealthy source of demand, but it’s a very persistent source of demand.

Here’s another interesting report by Canada’s Globe and Mail that I got a call to offer my perspective on just before it was published on Thursday. It seems that luxury residences in Vancouver are being snapped up by eager investors from China:

“Out of the nearly $200-million [worth of real estate] we’ve sold so far this year, I’d say 50 per cent was sold to Mainland Chinese,” said George Wong of Magnum Projects. “There’s a growing middle class and a growing wealthy class. And they have become the fuel to our real estate.”

In the article, I observe that all the turmoil and uncertainty in China’s own property markets may be propelling some Chinese investors to look abroad. I mentioned to the reporter, though, that I’m curious whether these Chinese buyers are actually looking to live in their new acquisitions in Vancouver (and some of the people quoted in the article assume) or whether they are going to hold the property idle, purely as an investment, as they commonly do in China.

The fact is, China needs to be investing more of its capital abroad — the fact that Chinese citizens have limited ability to invest abroad, even as they pile up earnings from exports, is one of the factors fueling a real estate bubble within China. But successful investment in real estate is all about knowing the location, the neighborhood, and the local market extremely well. It’s very risky to invest in real estate from a distance, especially if it’s purely speculative. So I wish these buyers well, but I hope they don’t have to learn the lessons many Japanese did when they overpaid spectacularly in the 1980s, and lost their shirts.

Under President Hu Jintao, “the direction of policy has been towards greater concern about income distribution, less emphasis on growth at all costs”, Tsinghua University economist Patrick Chovanec said.

Although growth figures (the magic 8% I mention in Ezra’s interview) are still a huge priority, the emphasis under Hu and Wen has definitely been to try to spread the benefits more evenly to China’s less advantaged provinces and social classes. This is one of the main reasons, in my view, why the recent labor protests have been tolerated at all, and why the media has been allowed to report on them. It fits in, for now, with the government’s own agenda — especially when the pressure is directed at foreign employers like Honda.

I’ve been getting a lot of questions lately about rising wages in China, and I’m going to have more to say on this subject in coming days. I actually think the situation is a lot more complex — and interesting — than has been portrayed in a number of recent articles that imply China is “running out” of cheap labor. I’ll also offer some thoughts on the impact of recent wage trends on foreign businesses in China.

Remember that investing in gold is not like investing in stocks for which you must consider several factors before buying or selling shares on the grounds that gold prices remain relatively intact, even though big ups and downs in the economy recorded. However, the best time to invest in gold is well before the economic crisis started because once it starts, people will rush to buy gold to protect their capital, leading to a shortage gold.